The 90s’ kids, especially ones born in the latter half of it like me, are considered to be the children of the ICE age; i.e. the Information, Communication and Entertainment age. We have the world at our fingertips, just the tap of a button away. And we have seen the simplest ideas grow into multi-billion giants, to give age-old stalwarts a run for their money. For every Microsoft or IBM from the 20th century, we have a Facebook or Amazon who has all but beat them in the race to the podium as far as financial success goes. As much as we ‘millennials’ are savvy for tech, most of us were little but diaper babies crawling on our hands and feet when one of biggest global ‘phenomenons’ in the internet business paradigm happened — the Dot Com Crash.
‘Crash’ as in crashed systems?
Oh no, not at all — if only it were. As much as the computers back in the day were prone to performance issues including but not limited to crashes and blue screens of death, this was a different ball game altogether. Let’s use the Time Stone to go back in time and see what it was all about.
Not a lot had happened since the creation of the World Wide Web by Tim Berners-Lee in 1989 and his authoring of the first web browser in 1990. It was at best, little more than a pretty popular research project. Come 1993, the Mosaic Web Browser hit the stands. It used HTTP, the best way yet and for a very long time, the most preferred one to connect to the Internet and the WWW. This coupled with people gradually coming to the realisation that a computer at home or work was no more a luxury but more of a necessity, saw a lot of them embracing the Internet — the Dial-up modems and the weird yet sweet sound it made while connecting which we remember in nostalgic fondness today, was a thing of dreams for them. This sudden boom naturally meant that technology evangelists, business giants and investment bankers spotted the Internet and Internet-based businesses as the next big thing. What followed was a frenzy with every other guy setting up his domain, website and online business. For a time when broadband internet was a thing of science fiction, the sheer volume of internet-based businesses that came up almost overnight, was baffling, to say the least. This boom at a global scale at almost a ‘blink and you will miss’ rate, is what is popularly known as the ‘Dot Com bubble’. A couple of big names(if not the biggest) we know today in the internet paradigm; i.e. Google and Amazon were part of this boom too. For a few years that followed, the players who were quick to jump on to the internet bandwagon with their businesses gained big — like, really big. And then as quickly as it all happened, around the year 2000, things started going downhill. The ones who gained the most were the ones who lost the most and then some more.
The stranger-than-fiction style burst of the dot com bubble, an event known as the dot com crash, is best captured in the story of Pets.com. The company, a giant in their hay-day, was part the popular Macy’s Thanksgiving Day parade, a telltale sign of their sheer popularity and presence. Fast forward a year, the company had all but shut shop and had for all intents and purposes, vanished from the face of the Earth, except investors’ ledgers and newspaper coverages. This was by no means a one-off case too. Investment banks of the time had gotten in a frenzy in going all out with IPOs of the dot com bubble’s children. Not unlike any other fad, money flowed in troves in these offerings and about a couple of years later, all that investors had left were massive losses and regret at having blown all that money. It wasn’t just the new kids on the block that lost, though — Cisco’s shares plummeted by about 86% while Qualcomm got it all so wrong that they just about managed to hang on and stay in business. Despite all the gloom and losses though, some players like eBay, Amazon and Google weathered the storm and lived to tell the tale — the latter two alive and kicking as we speak but that’s a story for another day.
But why did the bubble burst anyway?
When we refer to the burst, we’re talking not just about the ‘dot com’ companies’ implosions but also that of their support cast. Putting a finger on the one single most crucial reason for the burst is hard. But there are some that tower over others.
- Unprecedented funding: As much as funding is good for both the investors and the recipients, it can be a two-edged sword if not done judiciously. At the peak of the bubble, almost any company with a ‘dot com’ or tech-y word in its name could raise serious money through IPOs. People were running around looking for opportunities to invest and the recipient companies needn’t necessarily have generated profit or a significant revenue for that matter, to prove their worth and draw in the capital. Seldom did a ‘dot com’ IPO fail in that period. Post the hype-phase though, investors started coming back to the realm of reality and wanted returns on investment or at least the amount they invested in return. Failure of the companies to deliver to its benefactors did not go down well for either party.
- Get large or get lost: Standards of the bubble’s playing field were rooted on the companies’ effort to grow big overnight with the least amount of concern to quality or delivery. Amounts hitherto undreamt of were spent by them on advertising and branding as they thought that was the key to success. To put things in perspective, as many as 16 dot com companies aired their ads or promos during the Super Bowl of 2000, at rates of $2 million for a 30-second slot.
- The extravaganza: With gargantuan amounts of money being pumped, many companies pulled back no punches in living the extravagant lives, characterised by sprawling, lavish office spaces, luxurious vacations and other indulgences. Yet another trend of the bubble was the dot com party, where companies held flamboyant launch events for new products as well as periodic meet-ups in an effort to catch the public eye.
- Effort to catch up: With more and more people seeking internet access and even more companies setting up an internet-based business, telecom providers were implicitly under pressure to upgrade their own infrastructure. This included broadband connectivity which required optical fibre networks, a novelty and extremely expensive by the period’s standards, as well as a rat-race to grab 3G licenses to provide fast wireless connectivity. Once the bubble stopped peaking, telecom companies started realising that they had bit off more than they could chew and tried to overcompensate for the losses they were sure they will face sometime soon.
- The Y2K scare: Programmers and computer scientists around the world speculated that come the year 2000, computers might run into issues with handling the dates and times, especially because of years were often being handled using the last two digits, meaning a potential chance that something like ‘00’ could end up being interpreted as 1900 instead of 2000. Everybody, therefore, got into a frenzy to update their systems to withstand the overarching issues that the supposed bug might cause. That the year 2000 came and went and the Y2K situations turned out not to be a big deal after all was a happy thing in general but considering the amount sent on withstanding it, became a disaster to many.
And just like that things started going down and pretty fast at that. A lot of pre-emptive mergers sparked the speculations and investors re-evaluating their ‘blind’ investments in ‘dot com’ added fat to the fire. Companies were now being evaluated based not on the hype or promise of dot com in their name, but based on how fast and (in)efficiently they were burning their capital. Naturally, the halt in in-flux of funds resulted in massive lay-offs and eventual liquidations of companies that just couldn’t deliver.
A lot has changed since…
Indeed it has. Internet costs have come down while their speed and performance have gone up. Computers are way too cheap and available in a lot of options as far as specifications and brands go. Thanks to the likes of AWS, Azure or Google Cloud, investment to be made on infrastructure is coming down by the day — you no more have to set up your own physical servers or data warehouses and more services are gravitating towards teh pay-per-use model. With the advent of social media, advertising and getting the word out has never been easier. Thanks to co-working spaces, all you have to lease now are the number of seats you need, as opposed to entire office spaces.
That said, the easiness we saw above has actually made things a little too easy, in a manner of looking at it. Now virtually anybody can set up their own internet-based business, or specifically, apps. ‘I am bored — let’s make an app to beat boredom’. ‘I am hungry — let’s make an app to get food’. ‘I want to go somewhere — let’s make an app to hail a ride’. Basically, everything has an app now and the situation has come to a point where there are multiple apps serving the same purpose, battling it out in the market. Once again, the interest of investing in tech and tech-enabled businesses seem to have been rekindled, as proven by the immense success of recent IPOs of the tech players.
Investment banks are once again back at it, putting valuations of app-based companies in the billions, despite some of them actually making losses. And the metric that’s given highest precedence? Ability to attract user traction and funds. But the fact is that the lack of significant profits is causing these companies to burn through their capital, and are close to being on the rocks. While a ‘winner-takes-all’ situations is what seems apparent from the success of Facebook, Google and Amazon, this isn’t always the case and there’s more to their success than that, as we’ll see shortly.
The App market
When talking about apps, we can broadly classify them into two bunches — one that is driven by content and thereby content monetisation, and the other being those which cater to the provision of goods and/or services.
Yes content is king and great content can make you a winner. But the hard truth is that the world’s content creators aren’t prolific enough to satiate the needs of the fickle-minded users. When a new form of content or content delivery comes in, people flock towards it out of curiosity — that’s the easier of the tasks, getting users to look at you. The hard bit is keeping them hooked. Case in point, Orkut — it was where social media started and ended for a lot of people until about a decade ago. After a while, it started getting old, nothing new coming in and people gradually drifted away from it. The tale of MySpace isn’t very different. Think about it — even a behemoth such as Google, a name that’s synonymous to the internet itself for many people, failed in the social media side of things with their recently shut down Google+. Linkedin, the haven for job seekers and professionals, isn’t exactly hatching golden eggs, despite its buyout by Microsoft and substantial popularity. With every passing day, it’s becoming a formal version of Facebook, something that it is not supposed to be. And why? The pressure to stay relevant.
On the flip side, it isn’t all hunky-dory for the goods and service provider apps like say, Uber or Zomato. And it isn’t because they’re bad — not by any means. It has more to do with the stiff competition they are facing(from the likes of Lyft, Ola and Didi Chuxing for Uber, and Swiggy for Zomato). In a bout to stay relevant and not lose out on their user base, these companies are forced to provide their services by taking a hit themselves. And to make matters worse, they have to fend off and tackle with other issues like those raised by the local market — opposition by local auto-wallahs against Uber and the recent #Logout campaign against Zomato from the NRAI(National Restaurant Association of India are prime examples.
The reason Facebook, Google and Amazon are staying on top and managing to stay there comfortably is a result of the fact that despite where they started off from; i.e. a social network, search engine or e-commerce platform, they have widened their horizons to a point beyond recognition. Facebook today, is a social media behemoth, as exemplified by the fact that they own the most popular social media applications — Facebook, Instagram and Whatsapp. As much as Google is a search engine, it today owns more services used by the netizens than we can put a number on — Android, Youtube, Google Assistant, Google Cloud, AdSense… And lastly, Amazon has done one of the smartest things — the massive infrastructure that they set up for their requirements like the server farms and cloud facilities, they have scaled them and are selling them to people who can avail these services mostly on a pay-per-use model, by means of AWS. And let’s not even mention Kindle, Fire TV Stick or Echo. These three are also major players in R&D when it comes to AI, Machine Learning, AR, VR, etc.
In conclusion, while something as massive and cataclysmic as the dot com crash isn’t imminent at this moment, the current scenarios do have a striking resemblance to the dot com bubble. For all we know, this could be a false alarm, like an asteroid passing close to Earth but not going to crash into it to take out the dinosaurs.
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Originally published at http://ashwinsathianwrites.wordpress.com on September 22, 2019.